Business Change

Question 1

Business Change

Answer 1

the adoption of a new idea or behaviour by a business in its internal or external environments. E.g changes in consumers tastes or change in employees expectation

Question 2

KPI

Answer 2

A key performance indicator is a measure or set of data that allows a business to determine whether they are meeting business objectives. They can evaluate a business’s performance before and after implementing change to see whether the change has been successful.
A manager will assess how these are going measured against the Key Performance Indicators, to give a good idea where the business is performing.

Question 3

KPI: Percentage of market share

Answer 3

Is the portion of sales of a product that a business has achieved in relation to the sales of the same product that other companies have achieved in a percentage
Some industries have large few business that dominate the market share thus has large number of customers.

Question 4

KPI: Net Profit Figures

Answer 4

The numbers found in an income statement that show the net profit . the amount left after all expenses have been paid Most used KPI as it can measure all types of business net profit regardless of size. Major difference is that smaller business expects to earn less profit than larger ones and social enterprises do not expect to make profits and if they do they reinvest. Shareholders of larger business demand higher profits thus they can receive higher dividends, whereas smaller business will be happy with smaller profit if they draw regular wage.

Question 5

KPI: Rate of productivity growth

Answer 5

measures how productive a business has grown overtime. Increased rate of productivity growth has meant that they have been more efficient or resources which will positively affect other KPI’s.

Question 6

KPI: Number of Sales

Answer 6

Number of sales is the total quantity of sales of a particular product or service. This will determine whether the business has met its sales forecast and whether they must do something short or long term to increase sales. This meaning knowing the trends in sales. E.g seasonal, school holidays for movies.

Question 7

KPI: Rate of staff absenteeism

Answer 7

A percentage indicating the number of workdays lost due to unscheduled staff absences from work, especially without a good reason. Every time a staff member is absent the employee faces a cost. Rate of productivity decreases, other staff member must complete work and the financial cost for employers by paying sick leave. This KPI is good as it can indicate staff morale problems and can lead to increased staff turnover if not addressed.

Question 8

KPI: Level of staff turnover

Answer 8

Measures the number of employees who had to be permanently replaced with a given period. It can indicate staff morale problems that a business should minimised. Staff turnover can cost a business advertising costs, recruiting and training costs and skills and experience. A businesses reputation can be harmed if there is a lot of job vacancies as potential employees might be hesitated to apply thinking there is something wrong. For some business losing one quality employee can be the difference to give the competitive edge.

Question 9

KPI: Level of wastage

Answer 9

In a production system will give an indication of a business efficiency and is a measure of resources that has not been converted to outputs. Reducing waste will reduce cost associated with product which will impact positively to wider community.

Question 10

KPI: Number of customer complaints

Answer 10

The number of written or verbal expressions of dissatisfaction from customer about an organisation’s product or service. Enables manager to compare the number of complaints over time and towards competitors.
An increased in complaints means there is something wrong meaning manager will need to improve training or the product or service standard. A decrease in complaints means policies and processors are working well. Customer complaints can effect reputation which can affect other KPI’s such as number of sales, net profit figures.

Question 11

KPI: Number of workplace accidents

Answer 11

The number of unplanned events interrupting the flow that may or may not include injury or property damage. Can indicate if the business sees safety as important priority and how employees are treated. Reducing workplace accidents can have a positive effect to a business bottom line. Every time an employee gets injured at a workplace the insurance premium increases costing the business to pay more. When a business protects it employees it can: reduce time lost, reduce disruptions to productivity, increased employee morale and reputation.

Question 12

Lewin’s Force Field Analysis Theory

Answer 12

Developed by theorist Kurt Lewin. He developed it to understand the problems and effects of change within a business. Lewin believes that changes can be plotted and discussed by key decision makers by using a model to identify drivers and restraining forces

Question 13

Lewins Model

Answer 13

1. Define the target of change
2. Identify the driving and restraining forces
3. Analyse the forces which can be changed by ranking them 1 to 5 to evaluate their strength
4. Develop an action plan on what can be changed

Question 14

Driving Forces for business change

Answer 14

Driving forces are the factors that initiate support or push for change.

Question 15

Managers as a driving force for change

Answer 15

Managers have a variety of responsibilities most importantly ensuring profitability. Managers are the driving force for change as they will have a vision for the business and will often initiate, lead, and implement change. Manager will be responsible for communicating change and support key stakeholders and may act as role models for change.

Question 16

Employees as a driving force for change

Answer 16

Employees expect to be trained, paid fairly, and treated ethically. They may initiate change that supports their role or employment such as work-life balance policies. More likely to follow change if majority of employees support change the process will be much smoother as they will influence others. More likely to suggest innovative change if they are empowered.

Question 17

Competitors as a driving force for change

Answer 17

A business needs to monitor competitors and respond quickly or risk losing sales. The desire to maintain competitive advantage is a constant driving force for business. Competitors may cause business change by introducing new technology, new promotions, and innovative products.

Question 18

Legislation as a driving force for change

Answer 18

If the law changes business is required to alter policy or process to remain compliant. This may relate to amount of tax business needs to pay, unfair dismissal laws, minimum wages, permits and licences and occupational health and safety.

Question 19

Pursuit of Profit as a driving force

Answer 19

• Owners, management, and shareholders would see profit as a main objective of a business. If profit levels are declining or not as high changes will be made to increase revenue and decrease costs.

Question 20

Reduction of costs as a driving force for change

Answer 20

• If costs and operating expenses increase overtime it will be hard for a business to achieve its objective of making profit and may be driven to change to reduce expenses and will try to: source cheaper suppliers, reduce wages either downsizing or replace with technology, outsourcing, minimising waste

Question 21

Globalisation as a driving force for change

Answer 21

The increased in global trade and investment due to improvements in communication, transport and removal of trade barriers resulting in a single world market. Business has global competitors that sell their product overseas. Businesses who don’t adjust to these global considerations may lose competitive advantage

Question 22

Technology as a driving force for change

Answer 22

Constant improvements to technology can drive a business to make changes. Technology allows business to improve productivity. Technology has driven businesses to change in numerous ways such as automated production lines, Ecommerce, social media, robotics.

Question 23

Innovation as a driving force for change

Answer 23

Innovation involves improving or changing existing product or process. Can be driven by new technology or desire to remain competitive.

Question 24

Societal attitudes as a driving force for change

Answer 24

Changing opinions, values and lifestyle of society drives business to change. This can be increased women in the workforce, ageing population, migration, and CSR expectation. These changes can lead to a business to change their policies.

Question 25

Restraining forces

Answer 25

Restraining forces are factors that repress or resist the pressures for change, they act to hinder the progress of change or prevent it from occurring.

Question 26

Manager

Answer 26

• Managers are responsible for achieving an organisation’s objective. They might resist change because they may not have the skills and experience, they may be concerned to how employees may respond, senior management could change without consulting middle management, management positions may be made redundant

Question 27

Employees

Answer 27

• Are people who paid a wage or salary by business in exchange of their labour. May resist change because of concerns for job security, change in workloads, requirement of new skill, impacts existing corporate culture, lacks understanding for need of change. For change to be successful manager will need to ensure staff understand change, consulted about change, provide support or training due to change.

Question 28

Time

Answer 28

Sometimes a lack of time may prevent business from introducing change or making the most of an opportunity. There must be sufficient time to plan, consult, seek feedback and implement change for it to be successful therefore essential to be proactive for change. Larger business with many levels of management may implement change slower than sole trader and external factors like competitors and societal attitudes can change quickly.

Question 29

Organisational inertia

Answer 29

• Refers to a business’s inability to react to internal and external pressures to change. This may be due to a traditional or conservative culture where management is rigid thinking. Due to existing management styles or policies make it difficult.

Question 30

Legislation

Answer 30

• Some laws may be introduced to prevent or restrict change from occurring in a business. New OH&S laws may require a business to train staff to remain compliant, restricts misleading advertisement, local council introduce parking restrictions and may limit foot traffic, changes to tariffs may restrict buying import goods.

Question 31

Financial Considerations

Answer 31

• Is the financial cost associated with implementing a change may make the change not visible, therefore must undertake a cost-benefit analysis to determine whether to proceed. Could be purchasing equipment, technology or buildings, training employees, redundancy payments, business loans. However, could impact business revenue short-term for long term gain.

Question 32

Porter’s Generic Strategies

Answer 32

• Porter’s theory is generic which means that it can be applied to any business or industry. Theory suggests that a business to remain competitive should be proactive or strategic and look to either: reduce costs of production, differentiate (find a point of difference from its competitors.)

Question 33

Gaining Competitive Advantage with Porter

Answer 33

• Having a competitive advantage places the business in a superior position, or enables it to achieve a point of difference compared to competitors
• For Porter it can be achieved by Reducing its cost of production to enable the business to offer consumers a low price and undercut competitors
• Diversifying product range to include unique features or improve quality which adds value to consumers.

Question 34

Porter’s Lower Cost Strategy (LC)

Answer 34

• Goods and services can be offered to consumers at a lower price, undercutting competitors, and potentially expand domestically and foreign sales. E.g Aldi, Costco
• Competitive advantage is gained through reducing or altering the production costs of the business.
• This strategy is more effective in industries which contain price sensitive or cost-conscious consumers who choose based on price.
• It is achieved while staying competitive using Asset Utilisation (using resources effectively) and reducing direct and indirect operational costs.

Question 35

Assets Utilisation

Answer 35

Minimise idle stock on shelves, do not stock products that does not sell. E.g Maccas having uncomfortable furniture to turn over tables quickly by customers leaving when they ate. Ikea selling cheap stylish furniture to reduce assembling costs.

Question 36

Reduce direct and indirect costs

Answer 36

• Sources suppliers from cheaper suppliers, minimise wage costs, offers minimal packaging, bulk buying, implementing JIT

Question 37

Advantages LC

Answer 37

•Strong competitive advantage in markets with price conscious consumers, aims to lower costs of production may lead to efficient and effective operations, creates a barrier for new competitors to enter market as they would need to match

Question 38

Disadvantages LC

Answer 38

potentially lower customer loyalty as customer are price sensitive, potentially customers may associate lower price with lower quality, standardised goods and services will not meet customers who wants unique offerings.

Question 39

Porter’s Differentiation strategy definitions

Answer 39

• A differentiation strategy offers customers a unique service or product features that are of perceived value to customers to gain competitive advantage. Used to make goods look more attractive to consumers. E.g Apple iPhone.
• Allows business to market itself as the leader and innovator in that industry. If business can create a product with distinct attributes, it is able to charge premium as they can pass costs to consumers. Generally, will increase expenses. Suitable for highly competitive markets without price sensitive consumers. Most successful when businesses uniqueness is unable to be copied by competitors.

Question 40

Porter’s Differentiation Strategies that could be used

Answer 40

• High quality products- product durable, better customer support, extended warranties.
• Multiple branding- different brands in the same market or similar product with subtle differences.
• Innovation or R&D- develop product with unique features or technology no other business produces.
• Niche marketing- appeal to specific segment
• Advertising- a brand image that portrays status

Question 41

Advantages Differentiation

Answer 41

Strong competitive advantage in markets with brand loyalty, can work with large business who have money to create a brand image, can work with small business who create a unique point of difference

Question 42

Disadvantages Differentiation

Answer 42

not good for price sensitive consumers, unique features can be copied by other producers ruining competitive advantage, requires more investment in R&D.

Question 43

Similarity for LC and Differentiation

Answer 43

both aim to increase profitability of the business by providing competitive advantage

Question 44

Difference for LC and Differentiation

Answer 44

Businesses that use lower cost strategy sell products lower than competitors whereas differentiate strategy leads to high/premium price strategies, LC targets price sensitive consumers whereas differentiate are likely to be loyal and not price sensitive, LC focus on reducing operational costs (internally), whereas Differentiate focus on meeting customer needs (externally)

Question 45

Porter’s Theory and Change

Answer 45

• One a manager has identified change is necessary (after analysing KPI’s) they need to decide if the strategy is right for them to remain competitive. Strategy must align with business objectives and mission, vison statement. Must choose Internal or external approach and may use SWOT to determine which one is more suitable.